Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 21, Problem 12PS
a)
Summary Introduction
To determine: Value of Company B’s call.
b)
Summary Introduction
To determine: Value of delta when prices rises to $440 and falls to $110
c)
Summary Introduction
To discuss: The way option value of delta is different from the level of stock price.
d)
Summary Introduction
To determine: The way person X could replicate investment in stocks with the combinations of call options and risk-free lending.
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Students have asked these similar questions
Suppose the stock price is currently $75. For the next six months there is 7.5% probability that the stock
will appreciate 8% with 4% annualized drift. The risk-free rate is 1.53% per year with continuous
compounding. The dividend yield is 1 p.a.%. Value the following option using binomial tress and 12-time
steps.
a.) What is the value of a six-month European put option with a strike price of $86.
b.) What is the value of a six-month American put option with a strike price of $70.
c.) What is the value of a six-month European call option with a strike price of $86.
d.) What is the value of a six-month European put option with a strike price of $70.
e.) Estimate how high the minimum strike price must be for it to be optimal to exercise the put option
immediately.
Suppose the stock price is $20 today. In the next six months it will either fall by 50 percent or rise by 50 percent. What is the current value of a call option with an exercise price of $15 and expiration of one year? The six-month risk-free interest rate is 10 percent (periodic rate). Use the two-stage binomial method.
$7.86
$2.14
$8.23
$8.93
Suppose Carol's stock price is currently $20. If the standard deviation of the continuously compounded returns (σ) on a stock is 60 percent per year. The annual risk-free rate is 12%, compounded every 6 months. A. Using one-step binomial tree, what is the current value of a six-month call option with an exercise price of $25?B. Using two-step binomial tree, what is the current value of a one-year put option with an exercise price of $25?
Chapter 21 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 21 - Prob. 1PSCh. 21 - Option delta a. Can the delta of a call option be...Ch. 21 - Prob. 4PSCh. 21 - Binomial model Over the coming year, Ragworts...Ch. 21 - BlackScholes model Use the BlackScholes formula to...Ch. 21 - Option risk A call option is always riskier than...Ch. 21 - Prob. 8PSCh. 21 - Prob. 9PSCh. 21 - Binomial model Suppose a stock price can go up by...Ch. 21 - American options The price of Moria Mining stock...
Ch. 21 - Prob. 12PSCh. 21 - American options Suppose that you own an American...Ch. 21 - Prob. 14PSCh. 21 - Prob. 15PSCh. 21 - American options The current price of the stock of...Ch. 21 - Option delta Suppose you construct an option hedge...Ch. 21 - Prob. 19PSCh. 21 - American options Other things equal, which of...Ch. 21 - Option exercise Is it better to exercise a call...Ch. 21 - Prob. 22PSCh. 21 - Option delta Use the put-call parity formula (see...Ch. 21 - Option delta Show how the option delta changes as...Ch. 21 - Dividends Your company has just awarded you a...Ch. 21 - Prob. 27PSCh. 21 - Prob. 28PSCh. 21 - Prob. 29PS
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